- 13 hours ago
What if the secret to winning in business isn't competing better? What if it's competing less? That's the idea behind category creation. And this week, I'm speaking with Kevin Maney, co-author of The Category Creation Formula, to break down exactly how it works. Kevin lays out a simple but powerful formula for creating and owning your category. Drawing on real-world examples ranging from the minivan to White Claw, Maney shares his strategies for success.
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00:00We call this book The Category Creation Formula because we actually, there is something of a
00:04formula that's a great discussion driver. Context plus missing plus innovation equals a new category.
00:10Context constantly changes and sometimes it changes a lot. The more that happens,
00:15the more new problems it creates that didn't exist before or creates new ways to solve a
00:20problem that's been around for a long time. Running a business means solving problems.
00:26I tell you how the smartest entrepreneurs do it. Hi, I'm Jason Pfeiffer,
00:30Editor-in-Chief of Entrepreneur Magazine, and this is Problem Solvers.
00:56How do you cut against their rules? And so on. But there's another way to do this. If you can
01:01see
01:02the opportunity that others don't, well, then you get to set the rules because you're not competing
01:08in a category. You are creating the category. You are defining the category. How do you recognize
01:13that opportunity? That is the thing that we are talking about today because I am with a guy who
01:17thinks deeply about it. His name is Kevin Manning. He helped introduce category design in a bestselling
01:23book called Play Bigger. And now in a new book, The Category Creation Formula, he and a co-author
01:29share the secrets that they have learned over the past decade, plus new concepts and tools that help
01:34companies see and frame new categories. Their advisory firm has worked on strategic category
01:38design projects with more than 50 companies and guided workshops for hundreds more at incubators
01:43and VC portfolio gatherings. Kevin, thank you so much for being here. Welcome to Problem Solvers.
01:48Thanks, Jason. Great intro. You nailed it.
01:51Thank you. Okay, good. Because, you know, I'm not the category defining expert you are,
01:56but I have heard this conversation come up in so many different ways about how if you can be the
02:03category definer, then you not, it's not just that you have first mover advantage, but you get to shape
02:10perception of the product or the category and it becomes a game of everybody else competing against
02:17you. But why don't you step back and set up this idea for those who are less familiar with it?
02:24Sure. Well, you know, so here we are on the Problem of Selfverse podcast and a problem, there's one of
02:30two problems that a business has or a company or a founder, for that matter, investors who have a
02:37portfolio of companies. One is you're in somebody else's category. And as you just described really well,
02:43you enter somebody else's category that they've already set the rules and the expectations and
02:49the pricing and everything else. And you are basically going to have to follow them.
02:55You're going, they're going to win most of the market share of that category. You're going to be
02:59able to say like, okay, our thing goes like 15% faster or whatever it is. And we'll scrape a
03:04little
03:045% out of that. That could be a really good business, but it's not what really ambitious founders
03:08tend to want to do. Right. And let's just, let's just, let's just use a random category here just
03:14so that we have something to talk about, which is let's say toothpaste. If I started a new toothpaste
03:18company, then every consumer already is buying toothpaste. So the way that I would win is to
03:23just try to pull some small percentage of people away from Colgate or something. And that, that can be
03:30a good business, but you're always competing against Colgate. Right, right. And, and Colgate has
03:36set the expectations. We call it the rules of what it's going to come to this tube. It's going to
03:42like have a kind of a minty flavor. It's going to, you know, you put it on a toothbrush, all
03:45that
03:45stuff. You start selling toothpaste in a, you know, in a screw top jar, you know, people are going to
03:51look at you funny. Right. Because they're already familiar with the design from Colgate. I mean,
03:57I don't know if Colgate actually invented this design, but let's just run with it. And therefore the
04:01expectations of what the consumer sees as toothpaste is designed, is, is driven by and defined by
04:08another company. Right, right. And actually, so, and I don't want to belabor this, but just to take
04:13it to, you know, a more modern technology example. So you think about Uber. So Uber, and you can go
04:21on
04:21the internet, you can see the first pitch deck that Uber ever used to pitch investors. And, you know,
04:28this was the early days of the smartphone. Nobody had seen this kind of application before. And
04:33there's probably a hundred different ways you could have done a car ride hailing app. But Uber
04:38chose this particular way with a map on it. You can see where the black cars are. You put your
04:42credit
04:43card in, you know, so that you don't have to pay, you know, on the, in the ride, all these
04:48other
04:48little factors. And, and, and essentially Uber ended up by doing that, setting the rules for what
04:55ride hailing apps are going to look like. And if you today go anywhere in the world and open even
05:01a
05:01local ride hailing app in Singapore or Southeast Asia or something like that, it's going to look
05:06like Uber's because Uber set those expectations of what it's going to be, which then permanently,
05:12I mean, as long as this is a thing, right, puts Uber in the driver's seat of what that category
05:17is
05:17going to be like. That's, that's a wonderful position to be in as a, as a company, right, to be
05:22the
05:22one that is setting those rules in that way, because then everybody else has to catch you.
05:26Right. And then the question is, how do you do it?
05:28Yeah. Well, how do you do it? Right. Because it sounds like the way to do this is to do
05:32the
05:33hardest thing in business, which is to come up with a completely new idea that nobody has seen
05:39before. Is that the barrier? Well, there's, so there's two barriers actually. And so first of all,
05:46yes, like creating something entirely new, but the good news about that is that, so we call this book
05:52the category creation formula, because we actually, there is something of a formula. It's a great
05:57discussion driver that, you know, we think every company should put up on a whiteboard and just
06:03talk about from time to time. So the formula goes like this, it's context plus missing plus innovation
06:09equals a new category. And so the context is everything that's changing and happening around
06:16your desired audience. And the good news is, is that context constantly changes. And sometimes it
06:22changes a lot. Right now it's changing a lot, right? Between AI, geopolitics, you know, there's so much
06:31going on in the world that's shaking up, you know, the way we live and work. The more that happens,
06:37the more new problems it creates that didn't exist before, or creates new ways to solve a problem
06:45that's been around for a long time. And the good news is that, that as the more the context is
06:51changing, the more of those problems and solutions and possible solutions are emerging that didn't
06:57exist before. So that's the missing part of the equation. If you can see that context and then start
07:02to understand what's missing now that, that people actually really need, it becomes very easy to see
07:09that new innovation that you can create to solve for that missing in this new context that often puts
07:15you in the, in the best position and, you know, over time, but not always, you know, Jason, I mean,
07:22you probably remember, you know, 20 years ago or whatever, that there was always this concept,
07:27the first mover advantage in technology, which turned out to be not really true, right? I mean,
07:34the first mover did, you know, often sometimes did have an advantage, but not always, right?
07:39And that's because, um, and economists have studied the way categories work over time.
07:45And what they came to realize is that if a category really should exist, if it really matters,
07:52then somebody is going to create it. And a lot of others are going to say, that's really smart.
07:56Uh, we should do that too. They're going to come into this category, usually with a bunch of
08:02different, like sort of versions of maybe different designs, works a little bit differently,
08:06different form factor, whatever it is. Right. And you see this ramp up of like, in fact,
08:11if it doesn't happen, you've probably created a category that nobody cares about.
08:15So, so if you see that happen, okay, the category is real. Now the important thing becomes,
08:21um, so as all these companies pile in with these different designs,
08:26most of the buying public, whether it's B2B or B2C, it doesn't matter,
08:30is uncomfortable with that, right? Which one am I going to buy? How does this one,
08:34if I get this one, is it going to disappear in a year? It's a really cool idea, but I'm
08:38not sure
08:39what to trust here. And that's kind of what the early adopters play around, you know,
08:43but the rest of us kind of sit on the sidelines and wait. Um, but then what happens is some
08:51years
08:51down the road is this thing called the dominant design gets chosen because we want sort of one,
08:56we want to know there's kind of one way this works. Take smartphones for instance, right? Like
09:01remember all the different, there was Nokia's or there was Blackberry's or there was form factors,
09:05all these. Sure. Yeah. They, they looked right. They look totally different. That's a, that's a,
09:08I was going to ask you for an example of this, but that's a really nice one. So sure. The
09:12early
09:12smartphones had completely different designs and then the iPhone came along and it essentially
09:19created the standard for what at least this generation of smartphone looks like. And then
09:23every other smartphone started to look like that. That's exactly right. And because, because look,
09:29I mean, we don't want to learn one phone's operating system and then they have to figure out
09:32another one three years later and you know, all these things, right? So yes, when, so when the iPhone
09:38came along, it basically set the dominant design, the expectations for what a smartphone is going to
09:44be like, and you either got on board or you disappeared. Because that's what most of the
09:49buyers want is that, that dominant design, not necessarily one company doing it, but a dominant
09:54design. Right. And, and the head of Blackberry, if I'm remembering this correctly, very famously said
10:00that nobody wants to type directly on the screen, which is the reason that they held on to the
10:05tactile keyboard, which turned out to be the mistake of the same. Exactly. Right. And by the way,
10:10I didn't want to type on the screen either. I like the little keyboard, but you know,
10:15so, so the two things that are important for any company wants to be this, you know, category
10:21creator and leader is one. Yes. It's great to be the category creator. That's, that can be really
10:27important because it does give you at least a first advantage, but it doesn't matter unless you
10:32went into the dominant design. That's really, really interesting. If I can just step back and
10:36just like make sure that I've got there, because that is a very interesting secondary lock, you might
10:43say, because when we first think about category creation, you think about, well, who has the best
10:48idea? Who has bringing something totally fresh to the market? I like your way of thinking about it,
10:53where you first look at the context, what technology has changed, what needs have changed, what are people
10:59able to do now that they weren't able to do before? And then therefore, what is the unmet need that
11:04is
11:05existing inside of this new world that has just been created? And you might think if you have the
11:10best idea and you take it to market, then you can win. But actually that's not true because if you
11:15have
11:16a good idea, you're going to get competition immediately. And so the real competition here is to lock in the
11:21dominant design, which is, which is a hidden concept inside of all of this. Is that right?
11:25That is exactly right. What happens too is, so, you know, our brains all work on cognitive biases,
11:32right? We like to think like these logical thinkers, but we actually have all these biases that kick
11:35into place. It tends to be the case that when someone wins that dominant design, they kind of lock
11:41in that bias as, you know, okay, they know what they're doing, right? Apple locked in the bias for
11:48smartphones that, you know, and Android came along, you know, a year later and, and basically copied the
11:55design because it is, it was the dominant design. And this is what often happens in healthy
12:00categories, right? You get this one company that sets that dominant design since cements the bias
12:07in people's minds that they're the ones that are the leaders and the go-to, right? There's almost
12:12always a number two that takes a lot of market share too, but like way less than the first one,
12:18by the way, even though there might be more Android phones in the world, Apple sucks up all the profits
12:23from the smartphone market. So they have the pricing power, which is another right thing.
12:27Right, right. And I know here, I'm also thinking there's Uber and Lyft, right? Which are your two
12:32main competitors. I mean, there are others, but that's basically all I think of. What are just
12:35some other, before you keep, before you move on, what are some other examples of, of who won the
12:39dominant design? Like, so we could just be thinking about the different ways this appears.
12:42Yeah. I mean, if, so let's take a step out of technology and go back quite a number of years
12:47to
12:47the 1980s. Um, and, uh, and, and Chrysler had its back to the wall, right. And, uh, it was actually
12:55going bankrupt and there was no way Chrysler was going to convince the world that we could
12:59introduce some sedan. It's going to be better than Toyota's or something at that point in time.
13:03But what they did is they, they latched onto something called the minivan. Uh, and it was a
13:10brand new class of car. It didn't exist before. And in fact, that whole kind of category formula thing is
13:16Chrysler recognized at the time that, um, that the baby boomers were moving to the suburbs,
13:21having multiple kids, driving them to soccer practices and all these things. And, um, and the
13:27only real choices for a big family were either like this, a condo van, big monster thing that drove like
13:33a truck or a station wagon that was just a long car. And, and, um, and concocted this new class
13:41of
13:41car called that they called, and they use the category of minivan and they branded it as something
13:45else, uh, which is also important because categories like something that's in the air,
13:50like microwave oven or smartphone or whatever. It shouldn't be a brand. Uh, and, um, and established
13:57this thing that every family, when they got the second kid had a conversation of, should we get a
14:02minivan, right? Important new category. And 50 years later, uh, you know, Chrysler still has like
14:09something of 50% market share in minivans, even though these big players like Honda and Toyota and
14:14whatever have come into the market. There's a similar example, um, with, uh, with hard seltzers
14:20because white claw, this little company out of Vancouver, even though these huge companies like,
14:27um, Anheuser-Busch have come in with versions of it. They haven't been able to knock a white claw
14:33out of the number one position because again, that, that sort of bias sticks in. And, um, so,
14:40I mean, continuing to press the advantage, I guess, is a big part of it. And, and, uh, and present
14:46yourself as the ones who were like, we are the ones that are in charge of this. I mean, it's
14:50kind of
14:50an attitude thing, right? We're, we're the ones that are in charge of this market. We're going to tell
14:54you where it goes and what flavors get introduced and, um, and don't, you know, don't let somebody
14:59else like overtake that. Yeah. I'd like to back up for a minute, Kevin, and revisit the original
15:07formula that you laid out, which was the context and the unmet need. And I'd love to hear your
15:14guidance for founders on how to assess the context and the unmet need. My realization in working with
15:21so many companies over the years is that they don't have this conversation. This is not something
15:27the leadership team sits around in a meeting and says, let's have this conversation about the context
15:31around our, our, our targets. And, uh, and that's where we start when we work with a company.
15:38So we will get a leadership team in a room and, uh, and say, we're going to spend all day
15:43basically,
15:44um, talking about, well, this formula, we've had some other, you know, thinking tools and things like
15:49that, of course, but it's basically, how do we get to exactly what you described? And so I'll give
15:55you an example. We worked with, um, I don't know, just was just before COVID. I think it was, we
16:00worked
16:00with, uh, LinkedIn's division called sales solutions. And it's a, it's a building. Lincoln, like the car.
16:07Oh, LinkedIn, LinkedIn. Oh, LinkedIn, LinkedIn. Okay. Got it. Not LinkedIn. No, LinkedIn. Yeah. Okay.
16:13LinkedIn. Right. Sure. So they have a division called sales solutions, about a billion dollar
16:16division. That's, um, a product specifically tailored towards sales professionals.
16:22And when we worked with them, they were 10, 10 years old. And they originally went to market with
16:27like, you know, we have this data and information and you can find people and all that stuff. Right.
16:32What they realized, the reason that they wanted to work with us on something was because they,
16:37first of all, there was a lot of these like competitors nipping, nipping at their heels and
16:40coming with new, like zoom info and these guys. But what they realized was that in 10 years,
16:45the sales profession had changed dramatically and salespeople were mostly really unhappy.
16:50Like there was all these tools they were trying to toggle between these different ones. And, um,
16:54and, and they still couldn't like really get what they needed to really drive. Cause the buyer,
17:00the way buyers bought it changed so much in the 10 years too. So the first thing we did was
17:05these had
17:05this really deep dive conversation just about the sales profession. What's happening to it? What are
17:10people miserable about? What are, you know, what would, what would make them their job so much
17:15easier? Um, and you kind of eventually came to this conclusion that, um, that the only way to
17:22really sell in a B2B environment anymore is to have a really deep relationship with the person you're,
17:28you're selling to, which is, you know, which is hard to establish without being able to use data
17:33information and like, you know, and, and track where people have gone and establish relationships
17:38and all this stuff. And so if deep relationships was the only way to be effectively selling,
17:45then, um, we needed to create a, they literally came to this conclusion. We need to create a product
17:50based on our data. Cause we, we have this data that can make this happen that, um, that was really
17:56geared towards finding and tracking and creating deep relationships. And we ended up calling the
18:01category. In fact, we call it deep sales. And, um, and, uh, the first thing that the, uh, group did
18:10actually after our, we finished was, um, they went away and redid the product for six months so that
18:16it met this need that they discovered in this session. And, and, you know, and then went to
18:21market with it and totally energized this, this, uh, what had been a lagging division and went inside
18:26of LinkedIn and turned them from like the, you know, slowest growing division into the fastest
18:31growing in a couple of years. You know what I really love about that anecdote? And I'll just
18:35say this so that you can react to it. What I really love about it is how the category that
18:40was created
18:41is not some widely known one. You called it deep sales. This is different from the minivan or the
18:51smartphone, right? Which are these very visible categories. I can keep thinking of them, right?
18:55We talked about Uber. We could have thrown Airbnb into this or all these things that are extremely
18:59visible that feel like distinct, easily recognizable things. In a way, what you are identifying is
19:07it is, you, you're calling it a category and you're going to treat it like a category and you're going
19:12to take it to market like a category. But I would bet that for the people who are selling it,
19:18what it
19:18also feels like is a distinct insight. It's almost like what we're taking to market here is,
19:24hey, your needs have changed. We have developed something that is specific to you right now that
19:31does something that nobody else does. And that doesn't, it's not a minivan, right? It's not a
19:36literal new object rolling down the street. But what it is, is a way to present yourself as doing
19:43something very distinct to your competitors and that's customized for the audience that you want to
19:50serve. And there's a nuance here to whether or not this feels like a new category exactly,
19:56or is it just a really smart product with good marketing, but whatever it is, it is allowing you
20:02to come to market with something that feels fresh, that you can talk about as fresh, and therefore you
20:08can establish the credentials around it. Do I have that right? You absolutely do. And in fact, one of the
20:13first reactions that I loved hearing among the sales team at LinkedIn was, finally, we have a story to
20:24tell that's going to resonate. Because they could direct it right at what people were feeling.
20:29Kevin Manning, you are the author of this new great book called The Category Creation Formula,
20:34which people should grab if they're interested in category creation at all. And also, how can people
20:39get in touch with you? They can, we have a firm called Category Design Advisors. It has a website,
20:46categorydesignadvisors.com. And, you know, everything you need to know is there. And there's also,
20:51we have set aside a few hours a week for what we call office hours. You can sign up for
20:57free and
20:58talk to us about category creation and design. We urge you to do that. Oh, that's amazing. Awesome.
21:03Kevin, thanks so much. Thanks, Jason.
21:14I'll see you next time.
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